Academicians aren't sure what causes growth to slow when bankers get too powerful, but they have some ideas.

The first is that too much finance encourages economic volatility, increasing the probability of large economic crashes.

The second is that the accumulation of power encourages the misallocation of resources in the good times via excessive leverage. Thus, and Miami condos with granite counters and outlandish price-to-rent ratios.

It could also contribute to higher levels of inflation via things like the recent commodity-trader-driven spikes in food and fuel prices.

The takeaway is that we need tighter regulation and capital requirements for large, global institutions, despite worries from the industry and some on the right that this will reduce profitability and tighten lending.

The 2010 Dodd-Frank financial reform, which addressed the problem with tools like the new Consumer Financial Protection Bureau, was criticized by Republicans as being too harsh. In reality, the package was too lenient, because it failed to address Wall Street titans' too-big-to-fail status.

This analysis suggests tighter credit would actually be a good thing, because, with lending to households already down, it would hit the "shadow" banking system of derivatives, collateralized loans and other types of gimmickry the usurers are indulging in at our expense.

We've been here before

With our economy and indeed our very liberty at stake, it's comforting to know that our predecessors fought similar problems and found creative solutions. I checked in with Robert Wright, an economic historian at Augustana College in Illinois, for some perspective on all this. He noted two things:

  • First, it's unusual, and somewhat frightening, that, aside from GOP presidential candidate Rep. Ron Paul of Texas, there is no political figure sounding the anti-Wall-Street battle cry.

    There is no modern-day Andrew Jackson, who took down the Second Bank of the United States -- one of our early central banks -- out of concern that stockholders were earning easy profits from taxpayers via the privilege of using cheap government money to make loans. Sounds like the deal today's Federal Reserve member banks get.
  • Second, although the Fed has held short-term interest rates near 0% since 2008 and has spent trillions pushing down long-term rates, many households still aren't benefiting in a big way because of the problems of tightened credit standards, negative home equity and Wall Street's need to protect profit margins.

Wright suggests one remedy would be to bypass Wall Street completely and have the government issue mortgage loans at 0.25%, the upper end of the Fed's short-term policy-rate window.

This would cut defaults by significantly lowering monthly payments, and it wouldn't require write-downs of mortgage principal (a bailout to homeowners that helped fuel the genesis of the Tea Party). Such a move would give every Tom, Dick and Harry access to the kind of financing enjoyed by Citigroup and JPMorgan.

On a typical 30-year $250,000 mortgage, a drop in rates from 3.5% to 0.25% would slash payments by 30%, from $1,435 to around $1,000.

Yes, there is a risk of political exploitation. And, despite the availability of the Internal Revenue Service to collect on these loans via things like wage garnishment, the government might be too lenient on borrowers. But there are precedents for it. In the colonial period, general loan offices in Massachusetts, Pennsylvania, New Jersey and New York made loans to farmers to help support the economy. And right now, the state of North Dakota is issuing loans via its Bank of North Dakota -- an institution funded by state deposits created in 1919 on a wave of populist anger toward the moneyed interests back east.

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Socialized financing of the type pioneered by the founding fathers and maintained by one the reddest states in the union? No one said the cure to a problem generations in the making would be easy.

At the time of publication, Anthony Mirhaydari did not own or control shares of any company mentioned in this column.

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Stocks mentioned on the previous page: JPMorgan Chase (JPM), HSBC (HBC), Citigroup (C) and Goldman Sachs (GS).